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Citrix rides the virty desktop wave

Thanks for Windows 7, Microsoft – can I have another?

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The maturation of desktop virtualization was coincidentally, and fortunately in the case of the Wednesday's financial results from Citrix Systems, timed more or less with the launch of Windows 7 desktops two years ago. The results show Citrix has been steadily capitalizing on its $500m acquisition of XenSource and others.

For the full year, Citrix posted sales of $2.21bn, up 17.7 per cent, and net income of $356.3m, up 28.6 per cent. While that is a little more than half the size of VMware at this point, and they are not exactly an apples-to-apples comparison, Citrix has managed to make itself relevant in the modern, cloudy computing world thanks to XenSource and myriad of other acquisitions, even if it is not by displacing VMware as the virtualizer in the data center on x86 servers. Citrix has fared better than Novell did with its acquisition of SUSE Linux in its fight to take on Red Hat and keep relevant, that's for sure.

In a conference call with Wall Street analysts after the markets closed, David Henshall, CFO at Citrix, said that the company's Desktop Solutions group had sales of $369m in the fourth quarter, up 14 per cent year on year, driven primarily by the strong uptake of the XenDesktop Swiss army knife of desktop virtualization.

Citrix added over 2,700 new XenDesktop customers in the fourth quarter and has added nearly 9,000 in 2011, with the installed base now above 12,000, according to Henshall. License software revenues in the Desktop Solutions group rose by 18 per cent in the quarter, and XenDesktop products now contribute more than half of the revenue stream across the XenApp, XenDesktop, and other Citrix products in this group. Desktop products also kicked in more than $100m in deferred revenue, which is a nice cushion for the future.

In the fourth quarter, Citrix brought in $619.4m in revenues, an increase of 16.9 per cent over the year ago period. Product license sales hit $229m (up 16.7 per cent), with license software updates at $192.9m (up only 9.2 per cent.) Software as a service revenues did well at $114.4m (up 20.7 per cent), and technology services rose strongly to $83m (up 33.6 per cent).

Desktop, application, and server virtualization - in the many forms that Citrix sells it - is complex and requires services from both itself and a band of systems integrators to get done. After all the costs are wrung out of the books, net income came to $108.7m, up 15.2 per cent from Q4 2010.

Citrix is no longer breaking out revenues by product, but it is clear that customers, given the choice of having a hodge-podge XenDesktop on a subscription basis or just the XenApp application virtualizer (formerly known as Presentation Server and used to stream Windows desktop apps from central servers) on with a perpetual license, are choosing the more flexible XenDesktop (which includes XenApp).

In the quarter, Citrix had 36 deals with over $1m in revenue for the Desktop Solutions group, with 225 deals having more than 1,000 seats covered; 40 deals had more than 5,000 seats, 10 deals had more than 10,000 seats, and one deal had over 100,000 seats. Companies facing a Windows 7 transition decided to virtualize their desktops at the same time, and Citrix is rubbing its hands together eagerly over the push that the Windows 8 upgrade cycle will give it.

In the Data Center and Cloud group, which includes XenServer server virtualization management tools (the hypervisor is free) and CloudStack cloudy infrastructure as well as NetScaler application acceleration appliances (both physical ones and virtual ones), sales rose by 21 per cent to $103m in the fourth quarter. NetScaler was the big driver here, up 40 per cent from a year ago.

The virtual appliance versions of the NetScaler appliances, called VPX, had a staggering 65 per cent revenue jump in the quarter. Henshall said that 500 of the 2,700 XenDesktop deals that the company did in Q4 had a NetScaler component to speed up apps running on the virtual desktops.

The Branch Repeater WAN optimization appliances and software had a tough compare, with a big deal having gone down a year ago that could not be repeated this time around. Mark Templeton, CEO at Citrix, said on the call that over 2,500 cloud providers are using the company's infrastructure in one shape or form, but he did not break out any sales figures for this part of the group.

What you can say is that the $300m acquisition of NetScaler by Citrix back in June 2005 has also paid off. In a very real sense, by acquiring NetScaler, XenSource, and a bunch of other smaller firms with cash from its Presentation Server cow, Citrix bought itself a future.

Citrix' family of online services continue to grow as well, with sales up 21 per cent to $114.4m. Collaboration products, typically carrying the GoTo brand, grew even faster, up 29 per cent, and now account for more than half total SaaS revenues at the company.

Citrix exited the year with a total of $960m in deferred revenue on the books and $1.5bn in cash and investments. Henshall said that, just as the company did seven small acquisitions to flesh out its products last year, Citrix was on the hunt for smaller acquisitions in 2012. Nothing too crazy or expensive or big, so don't get excited Wall Street.

Looking ahead, Henshall said that despite jittery conditions in parts of Europe, Citrix was comfortable enough with its pipeline and sales teams to raise its revenue guidance for 2012 by $30m, to somewhere between $2.49bn to $2.51bn. The company expects full-year non-GAAP earnings of between $2.70 and $2.74 per share. For the first quarter of this year, Citrix is anticipating sales of between $555m and $565m, and non-GAAP earnings per share of between 49 cents and 51 cents. ®

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